Monday, 24 August 2009

Banks lend to households, and cut credit to firms

While UK firms continue to be starved of credit, banks are slowing releasing loans to households. During the second quarter, households received additional credit amounting to little over 1 percent of GDP, on a net basis. In contrast, companies paid back just under 2 percent.

There is something contradictory about this pattern of lending. Households depend on their jobs to repay loans. Firms provide those jobs. If the corporate sector can not find credit, it can not investment, and growth will slow. At some point, this will feed through into wages, making it harder for households to service these new loans.

However, banks aren't terribly good at looking into these interconnections. In fact, bankers can not look much beyond this year's bonus.

7 comments:

Like the US, the UK exchanges worthless paper for useful commodities and manufactured goods.

It’s a brilliant system which gives me a great (relative to 90% of the global population) standard of living, despite my unproductive, do-nothing job.

If I really want to splash out I can borrow money well below the real rate of inflation thanks to the ever increasing value of my house. (Big thanks to Gordon and the bods at the BoE for keeping this on track!)

The profligate will not be so rewarded when a new government has the opportunity from May 2010 for hard money policy, raising interest rates to eradicate inflation for the first eighteen months of their term of office, while paring public spending. Ouch...

With the political parties hogging the centre ground, and a dirty election campaign in the offing - nasty cuts v nice cuts.

And Cameron and co not exactly giving you the feeling that they are up for a fight with the electorate

Is there an chance that the deceptions and the imaginative accounting will continue? If things are so bad will they really do the 'right thing' and deal with the real problems - debt, asset inflation, an engorged but jobs-a-plenty public sector, fiscal complexity, oppression in law, greenwash, etc.

The things that need to be done won't be popular, would a new government have the balls to do it?

Cameron is already getting sentimental about the NHS. Michael Gove is already lambasting the middle-classes for having the temerity to raise their kids properly and for their ingratitude to Tony Blair.

Don't vote Tory. More of the same. We need the Tories to disintegrate as much Nu Lab. This is as much a failure of opposition as it is incumbant administration.